Skip to main content

ICMA Centre Research looks at whether banks could survive a new Great Depression

A newly issued ICMA Centre discussion paper looks into the recent financial crisis and into whether banks could survive a new Great Depression. Simone Varotto, Teaching Fellow at the ICMA Centre, investigates whether banks complying with current and proposed bank capital regulation would set aside enough capital reserves to survive a Great Depression scenario, the severe worldwide economic downturn that occured in the 1930s.

Varotto first analyses banks' loan portfolios and finds that regulatory capital in most cases offers enough protection against extreme crisis events. The only exceptions are portfolios with average maturity beyond 10 years. Then, he investigates bank's trading portfolios and finds that current minimum capital requirements will have to increase dramatically and, depending on the maturity and rating characteristics of the portfolio, by more than 5 times the current levels to cover for credit risk and market risk in stressed conditions. He also finds that the increase is mostly due to market risk capital charges which can be more than 20 times larger than the newly introduced "incremental risk charge" for credit risk. The paper's conclusions call for further research to understand the potentially large impact of the new regulation on bank's investment decisions and lending practices."

Article in full

Published 18 March 2010

You might also like

Prize for Excellence in Capital Markets, Regulation and Compliance 2014

8 April 2014
The ICMA Centre, in partnership with Danos Associates, is pleased to announce the Prize for Excellence in Capital Markets, Regulation and Compliance 2014.

BBC South Today films election feature in the ICMA Centre

29 November 2019
As part of a series of features ahead of the General Election 2019, Professor Adrian Bell and Henley students were interviewed by BBC South Today's business editors Alistair Fee. Filming took place in one of the dealing rooms at the ICMA Centre, with students engaging in a stock market simulation in line with the series theme of 'What the markets say'.
Business News

Academic wins FIR-PRI Finance and Sustainability Award for PhD thesis

5 October 2017
Dr Lisa Schopohl, Lecturer in Finance at the ICMA Centre, has won the FIR-PRI Finance and Sustainability Award for her PhD thesis titled Essays on Institutional Investment and Socially Responsible Investing.